FMCG bellwether, Hindustan Unilever is seen posting a fall in its net profit in the March quarter weighed down by the continued depressed demand environment, higher ad-spends and royalty payouts, and flat revenue growth driven mainly by price cuts and increase in grammage.

According to street estimates, the Indian subsidiary of Anglo-Dutch Unilever Plc is expected to report a net profit of ₹2,470 crore, down 3.2 per cent from the previous year, with revenue close to ₹15,000 crore.

The company will be reporting its Q4 and FY24 results later today.

FMCG companies have been seeing poor volume growth with rural recovery yet to happen in a meaningful way. “Factors such as low farm income and the rise of small regional competitors are adversely affecting larger companies,” said Elara Capital, in an earning preview note on the sector.

While food categories have outperformed home and personal care products, revival in rural demand is critical for the sector which is pinning its hopes on a good monsoon to stimulate rural recovery.

HUL is being hit by intense competition from regional players.

The company’s revenue would have taken a hit from 3 per cent volume growth offset by 2 per cent price cuts, said Axis Securities. EBITDA margin is seen flat at around 23.6 per cent, owing to higher advertising and marketing expenses as well as royalty payouts. This would offset gross margin expansion of 410 basis points, it said. EBITDA has been forecast at around ₹3400 crore.

Nuvama Research sees an adverse impact of ₹75 crore in the quarter on sales due to the expiration of the Glaxo SmithKline consignment arrangement. Royalty payouts will also be higher as part of the arrangement with Unilever. In 2023 HUL had increased the royalty to be paid to its parent to 3.45 per cent of total turnover to be implemented in phases over three years.

“Urban continues to grow faster than rural and premium continues to do better than mass for HUL. Elongated winters are unlikely to benefit much but trade inventory shall get cleared,” it said in a preview note.

Analysts will be looking for commentary on rural recovery trends, competitive intensity, and raw material prices.